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Can the NASDAQ Composite Index Sustain Its Current Trajectory?

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The Nasdaq Composite Index has reached another all-time high

The tech-rich NASDAQ Composite Index (QQQ) has surpassed its previous all-time high of ~8,120 that it reached on August 31, 2018. On Friday, April 26, the index closed at 8,146.4, a fresh all-time high.

The index has surged in the last few sessions after decent earnings growth in the tech sector. Tech and media companies like Facebook (FB), Amazon (AMZN), Microsoft, Twitter, Snap, Netflix, and Comcast, among others, have produced good earnings reports, boosting the stock markets to all-time highs. The tech-heavy index has also been driven by strong gains in tech giants’ stocks. Currently, Amazon, Apple, and Microsoft all have a market cap of over $950 billion.

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The tech sector is trading at lofty valuations

The index has regained what it had lost in the last quarter of 2018. After one of its best quarters in the first quarter, the index continues to rise higher despite several headwinds.

After surging 21% in the first quarter, the NASDAQ Composite Index has already gained over 5% in the second quarter so far. However, these kinds of returns likely aren’t sustainable in the long term.

Most of the index’s returns have come through expansion rather than earnings growth, which likely can’t be sustained for long either. Earnings have to catch up, which is unlikely, or markets likely have to pull back. The volatility index is at 12.7, indicating that markets are complacent.

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